Dev Singhraha
Relocation Expert
When a buyer buys a home, their main concern for years is to pay off the home loan. A substantial amount of monthly income goes off in paying off the home loan. At this point when you get your yearly bonus, some people try to buy the things they have been willing to buy it for a while or some use the bonus to pay an extra EMI. The latter can be the wisest way to use your bonus. Paying an extra EMI every year not only reduces the burden but also reduces the length of the loan period. Also, the borrowers can pay off EMIs earlier without any extra penalty as before which is good news for the buyers.

Even though there are positive points for the borrowers to pay an extra EMI every year, but is it worth it? There are some questions you need to ask yourself before taking the step towards the same.

We discuss them here:

1. Do you have enough emergency savings?
Most of the borrowers pay around 60 percent of their monthly salary towards the EMI and 35 percent for the household expenses. With all these, there is very little left for savings for a rainy day. Although it is wise to pay off your bonus to pay EMI, but it is wiser to put that money safely for some emergency situation. Emergencies don’t come knocking on the door and in such situations not everyone is comfortable asking for money from friends and family. It is always a good idea to put the bonus in the contingency fund.
 
2. Will the pre payment of the EMI help you save in long run?
This is another important question that needs to be answered. A lot of people pay extra EMI hoping it will reduce their overall EMI amount. If this is your thought process or if you think similarly it is better to put the bonus amount if the place where it will give better interest with time. Try and evaluate the difference it will have with your EMI amount. Another option is that you can save your yearly bonus for few years and when it has accumulated to a decent amount, divide the saving in two and use one part to pay the extra EMI.
 
3. Are there any immediate needs?
We often get carried away by the burden of the loan and want to pay it off as quickly as possible. But take your time and evaluate if there are any necessary things that you require. If there are some, then go ahead and invest in them. Immediate needs are more important.
 
 
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